Islamic Banking

1.0 Introduction

   Today, we can see Islamic banking is fondly growing all over the country. This is due to the demand of Islamic Financial product which fulfils the Shariah Law requirement. The Islamic bank operates in accordance with Shari’a law and is guided by Islamic economic principles. In particular, the Islamic law prohibits the collection and payment of interests (usury) on the loans and deposits of the bank (Fatai, 2012).

   The establishment of Islamic banking in Malaysia can be traced back to 1963 when Tabung Haji (the Pilgrims Management and Fund Board) was established by the government to invest the savings of the local Muslims in interest-free places, want to save up to perform Hajj.  Whereas, the first Islamic banking in Malaysia was established in 1983, under the name of Bank Islam Malaysia Berhad. The important underlying force that led to the establishment of this Islamic bank in Malaysia was the elimination of interest-oriented riba (Abdul Hamid and Azmi, 2011).  

     Murabaha is a contract of sale between a seller and a buyer; the seller sells certain specific goods to the buyer at a cost plus an agreed profit mark-up for the seller. The seller must disclose the cost of goods and the profit mark-up. The repayments are usually in installments (Islamic-banking.com, 2016, BNM, 2010). It is very clear from this definition that Murabahah is not a loan that giving on interest. Technically, this contract is kind of sale where the seller expressly mentions to purchaser how much cost he has incurred and profit that he is going to earn.

   The payment in the case of Murabahah may be at spot, and may be on a subsequent date agreed upon by the parties. Therefore, Murabahah does not necessarily imply the concept of deferred payment, as generally believed by some people who are not acquainted with the Islamic jurisprudence and who have heard about Murabahah only in relation with the banking transactions.

    All the basic conditions for sale contract applies to Murabaha contract because it is also a type of sale and this Islamic contract is considered as a kind of trust sale. This is because the buyer trust on the seller in his disclosure of acquisition cost and profit. That is why if the seller found guilty if any deception or fraud in disclosure, the buyer has an option whether to accept the subject matter or terminate it.

2.0 Concept of Murabahah

  Basically, Murabahah involves the purchase of a commodity by the bank on behalf of the customer which is to be sold to customer on a cost-plus profit basis. The subject of Murabahah must exist and be in the ownership of the bank at the time of sale in a physical or constructive form such consumer goods, intermediary or capital goods, real estate, raw materials, machinery or equipment. In using concept of Murabahah, the asset must be valuable and is classified by the property of Islamic jurisprudence and must not be forbidden communities. Monetary units and debt instruments cannot be sold under this contract.